SecuraComm Consulting Inc. v. Securacom Inc.

• Decision Date: 20 January 1999
• Docket Number: No. 97-5794,97-5794
• Citation: 166 F.3d 182
• Parties: SECURACOMM CONSULTING INC. v. SECURACOM INCORPORATED; Kuwam Corporation; Wirt D. Walker, III, v. Ronald S. Libengood Securacom Incorporated v. Ronald S. Libengood; Clifford J. Ingber Securacom Incorporated; Kuwam Corporation; Wirt D. Walker, III, Appellants
• Court: U.S. Court of Appeals — Third Circuit

Page 182

166 F.3d 182

49 U.S.P.Q.2d 1444

SECURACOMM CONSULTING INC. v. SECURACOM INCORPORATED; Kuwam Corporation; Wirt D. Walker, III, v. Ronald S. Libengood

Securacom Incorporated v. Ronald S. Libengood; Clifford J. Ingber Securacom

Incorporated; Kuwam Corporation; Wirt D. Walker,

III, Appellants

No. 97-5794.

United States Court of Appeals, Third Circuit.

Argued June 26, 1998

Decided Jan. 20, 1999.

Arthur E. Newbold (ARGUED), Michael Doluisio Dechert, Price & Rhoads, Philadelphia, PA, Attorney for Appellants.

Howard N. Aronson (ARGUED), Robert B. Golden, Lackenbach, Siegel, Marzullo, Aronson & Greenspan, P.C. Scarsdale, New York, Attorneys for Appellees.

Before: GREENBERG, ALITO, and MCKEE, Circuit Judges,

OPINION OF THE COURT

ALITO, Circuit Judge:

In this trademark infringement case, we are required to consider whether the District Court erred when it awarded the plaintiffs a percentage of the profits of the defendant corporation and then trebled that award and also assessed attorneys' fees. Central to these awards was the District Court's finding that the defendant corporation had willfully infringed the plaintiff's trademark. Because we conclude that the evidence does not support a finding of willful infringement, we reverse and remand for further proceedings.

I.

In 1980, Ronald Libengood lost his job in the Westinghouse corporate security department, and he then began a small company that he called SecuraComm Associates. SecuraComm Associates was a security systems consulting firm that consulted with clients, surveyed facilities, designed security systems, managed projects, reviewed bids and evaluations, developed training programs, and presented security-related workshops. The firm deliberately refrained from arranging for the purchase and installation of equipment and from providing maintenance and technical support. The firm took this approach because many clients insisted on the separation of consulting from installation and support services so that the advice given would not be affected by conflicts of interest. Initially, most of SecuraComm Pennsylvania's business consisted of work for Westinghouse in Western Pennsylvania, but Libengood subsequently developed other clients in other areas.

Libengood formed the SecuraComm name from the terms "security" and "communications." When he coined this name, he was unaware of any other use of the word. All brochures, letters, and correspondence of his company bore the name SecuraComm Associates.

After losing Westinghouse as a client in 1992, Libengood incorporated his firm as SecuraComm Consulting, Inc. hereinafter ("SecuraComm Pennsylvania") and continued to do business through the corporation. Libengood was and is the president and major shareholder of SecuraComm Pennsylvania. After incorporation, the business expanded, but SecuraComm Pennsylvania remained a small company, with average annual revenues between 1992 and 1996 of slightly more than $250,000 per year. Since its inception, SecuraComm Pennsylvania has used the SecuraComm mark with Libengood's permission, and on January 1, 1995, Libengood and SecuraComm Pennsylvania entered into a formal licensing agreement.

In May 1993, Libengood applied for registration of the word "Securacomm" without reference to capitalization or stylization. Although the application was abandoned for a time, Libengood reinstated the application and received a registration on May 20, 1997. The registration application indicated a first use on January 1, 1980, and a first use in interstate commerce on September 3, 1981.

The predecessor of the defendant corporation, now called Securacom Incorporated, was formed by Sebastian Cassetta, and in 1987 this company became affiliated with the large engineering firm of Burns & Roe. The company's name was then changed to "Burns & Roe Securacom." In that same year, Libengood became aware of Burns & Roe Securacom as the result of a chance event at a conference in Washington, D.C., Libengood saw Cassetta throw into a fish bowl a business card bearing the name "Burns & Roe Securacom." Libengood then spoke with Cassetta during lunch, and Cassetta told him that he knew about Libengood's firm but that his attorneys had informed him that the similarity in the companies' names would not cause problems. Cassetta said that the use of "Securacom" preceded by the well known name "Burns & Roe" was not likely to cause confusion. He also noted that the two companies served different clienteles, since Burns & Roe Securacom engaged in upgrading security at overseas embassies and performed work in the nuclear field. Libengood took no action in response to this encounter.

In 1992, Burns & Roe Securacom hired Ronald Thomas as its chief executive officer, and within two days of Thomas's employment, Cassetta was fired. After Cassetta left, the company he had founded became independent of Burns & Roe when it received a substantial investment from entities including KuwAm Corporation, a venture capital firm of which defendant Wirt D. Walker, III, is a shareholder and officer. The new, independent company expanded its activities into the full range of security services.

In October 1992, a certificate of amendment was filed in the Delaware Secretary of State's Office, indicating that Burns & Roe Securacom had changed its name to Securacom Incorporated (hereinafter "Securacom New Jersey"). In November 1992, Securacom New Jersey filed a trademark application with the Patent and Trademark Office for the term "Securacom, Incorporated" for goods and/or services consisting of "large-scale security and facility management for businesses and government." This application alleged that the first use was in November 1992. Securacom New Jersey was denied federal registration because two other companies--neither of which was SecuraComm Pennsylvania--had filed applications to register names similar to "Securacom."

In January 1993, Libengood learned about Securacom New Jersey's name change, as well as its expanded business base. After consulting with an attorney, Libengood mailed Securacom New Jersey a cease and desist letter. Libengood and Thomas attempted to settle the controversy. Libengood proposed that Securacom New Jersey either (1) change its name and compensate SecuraComm Pennsylvania for the use of its mark, (2) purchase the Securacom mark from SecuraComm Pennsylvania, or (3) license the name from SecuraComm Pennsylvania. These negotiations continued for approximately one and one-half years until Libengood set a deadline of the end of 1994.

In November 1994, Libengood asked Thomas to share in the cost for appraising the Securacom mark. Thomas did not respond, and Libengood then went forward on his own. The appraiser estimated that the value of SecuraComm Pennsylvania's mark, together with the cost of changing its name, was $275,000. Libengood provided this appraisal to Thomas in May 1995.

In June 1995, Libengood informed Thomas that, since he had received no response from Securacom New Jersey, he would institute legal proceedings after 30 days. After some time, Thomas informed Libengood that he would have to deal with Walker, then the chairman of the board of Securacom New Jersey. When Libengood spoke with Walker, Walker became abusive and told Libengood that if he filed suit Walker would bury him financially and take everything he had.

Libengood filed suit against Securacom New Jersey in October 1995, alleging (1) service mark infringement, in violation of the Lanham Act, 15 U.S.C. § 1125; (2) false designation of origin, false description, and unfair competition, in violation of the Lanham Act, 15 U.S.C. § 1125; (3) common law infringement and unfair competition; and (4) appropriation of name, good will, and reputation, in violation of N.J.S.A. § 56:4-1, 2. In November 1995, Securacom New Jersey filed an answer and a third party complaint against Libengood, and in December 1995, Libengood filed a third-party answer, defenses, and third-party counterclaims. These counterclaims included the same four causes of action that SecuraComm Pennsylvania had asserted, plus a fifth count for libel.

At the same time, Securacom New Jersey's directors signed a document stating that Libengood's suit was meritless. The document specifically stated that Libengood was attempting to extort a payment of $275,000 from Securacom New Jersey. In November 1995, Walker signed a letter directing Securacom New Jersey's attorneys (1) to seek summary judgment and Rule 11 sanctions against Libengood and his attorneys; (2) to file suit against Libengood and his attorneys for extortion and RICO violations; and (3) to file complaints with various bar associations against Libengood's attorneys for unethical behavior in filing suit against Securacom New Jersey. Walker sent a copy of this letter to Libengood and his attorneys.

Securacom New Jersey's attorneys filed suit against Libengood and his attorney in New Jersey Superior Court in April 1996. This suit was removed to federal court and consolidated with Libengood's trademark infringement case, and the District Court dismissed the suit as frivolous. Securacom New Jersey also filed a service mark infringement suit against SecuraComm Pennsylvania in the District of Columbia Superior Court, but the District Court in New Jersey enjoined that action. Finally, the District Court stayed Securacom New Jersey's petition to cancel Libengood's trademark.

In May 1996, SecuraComm Pennsylvania and Libengood amended their complaints to add KuwAm Corporation and Walker as defendants. In July 1996, SecuraComm Pennsylvania added a libel count to its complaint. In August 1996, the new defendants filed an amended answer, counterclaims, and a third- party complaint. In addition to alleging various Lanham Act violations against SecuraComm Pennsylvania, the third-party complaint requested cancellation of Libengood's trademark registration if such registration occurred.

In October 1997, this case...